Transferring wealth successfully

One can never start too early when it comes to succession planning. This type of planning is increasingly important in today’s globalised world, where people have heirs spread around the world and hold assets in several countries with widely differing inheritance laws. Succession planning is always challenging, but a systematic approach can help to preserve your wealth for the next generation.

Many decisions made throughout our lifetime have a financial impact. Wealth planning – figuring out how we will pay for a new house, finance the setting up of a company or how to maintain the lifestyle we are accustomed to – is probably a natural reflex for most of us. Wealth planning enables us to align our finances with our personal objectives, establishing predictability and implementing safety measures.

Start ahead of time
Many of us, however, only start to think about succession shortly before all its related issues are due, leaving relatively little or no room to manoeuvre. “I would encourage everyone to think about their succession planning at an early stage, and to adapt their plans as their life cycle changes, be it through the birth of a child, relocating, founding a company or other events affecting their financial wealth. Sit down with the right specialists and discuss your wealth situation with them in a comprehensive manner,” says Roger Stutz, Julius Baer’s Global Head Wealth Planning. It does not matter if the wealth amounts to USD 50 000, 500 000 or 500 million. It is a lifetime’s work and therefore worth systematic succession planning – in any circumstances.

The more international, the more complex
Today’s world is characterised by constantly changing legal, regulatory, fiscal and economic frameworks of increasing complexity. How to pass on wealth to the next generation depends on legal aspects, the economic system, the tax regime the person is faced with and on personal circumstances. The legal and fiscal aspects may be even more complex when assets are held in several countries, or when heirs live in different countries. As soon as several countries are involved in succession, the complexity typically increases, for example due to taxation, time-consuming transactions involving the transfer of legal ownership and the control of assets.Such scenarios, however, also provide opportunities for succession planning, as long as appropriate plans are made early on, which means during the clients’ lifetime.

Increasing international mobility, where working a few years abroad is not an exception any longer, often also has far-reaching financial implications

Moving to another country involves being faced with different legal and tax regimes. Multinational family structures, where family members live in different jurisdictions, often increase the complexity of succession planning as well.

Keeping your sucession plan up to date
Most people are blissfully unaware of what would actually happen if they passed away and what they should consider well ahead of time. Unfortunately, the unthinkable can happen at any time which is why it is important to think about this personal topic whether you are 25, 50 or 75 years old.

Succession plans are not set in stone, as numerous changes can occur during a lifetime, triggering the need for updates to individual succession plans

Such events can be buying property, moving abroad or founding a company, to name a few. Once a succession plan has been set up, it should ideally be updated on an on-going basis, typically every three to five years or as major life events unfold. Regularly bringing your succession plan up-to-date means the process is not such a hassle and should not take long. It is however always necessary to start planning early and to involve the right specialists: those with multi-jurisdictional know-how and lateral thinking.

Some key points to consider:

Widely differing rules
Regulatory and fiscal frameworks can be diametrically opposed. For example, a couple may move abroad and set up a trust, which might appear to be beneficial in their new place of residence. But if their heirs are domiciled in another country, when they inherit their parents’ wealth, the trust might be heavily impacted by local inheritance rules and its benefits wiped out.

In all cases, a number of important questions relating to the legal and fiscal framework in the client’s country of residence arise. The operating parameters differ widely from country to country for both the donors and the beneficiaries. What may be regarded as a gift and is tax-exempt in one country may be taxed in another. Testamentary provisions might also be treated differently according to the jurisdictions involved; a few of them may turn out to be invalid when assets are spread out in different countries. Some jurisdictions may not accept the inheritance laws of the country where the deceased person lived and so it is good to be fully aware of such differences.

Your domicile is key
Due to the different aspects of succession planning, the regulatory and fiscal framework ruling these issues may differ greatly from country to country. Topics range from testamentary provisions, including designating will executors, prenuptial agreements, gifts made during a lifetime to usufruct agreements, changes of residence, other contractual arrangements such as establishing a trust, a family or charitable foundation, and insurance contracts.

Succession planning is an extremely personal matter

It should always be tailor-made to cater for specific individual needs. The specialists involved in drawing up the plan must first and foremost understand the actual needs of the clients, and what they want to achieve. A thorough and detailed analysis of the clients’ current situation builds the base. It provides a snapshot with regard to the assets and liabilities held, the incomes and outlays, the retirement provisions and all other factors impacting the clients’ current financial situation.

This means different measures depending on the clients’ background, and where they are in their life cycle. In one case, the succession plan might be about structuring the succession of a privately owned company, in another case it might mean that specific laws such as sharia are reflected, and in yet another case it could concern succession planning within a family context. It is of utmost importance not to overlook the essentials here. If certain factors are not taken into account, the resulting succession plan may be based on false assumptions and turn out to be invalid.

Once this snapshot has been thoroughly analysed, future scenarios can be simulated, taking into account anticipated changes in the clients’ personal circumstances and external factors such as taxes and the financial market situation. Considering a range of potential scenarios creates a certain degree of predictability and therefore additional security for guiding clients in the right direction. The scenarios are used to devise various concrete measures, which can be implemented to enable clients to achieve their goals. A road map consisting of an overall strategy and specific measures is then drawn up, with the aim of helping the clients to reach their personal goals.

Global and local knowledge needed
Understanding complex succession issues, and addressing them with reliable personal wealth planning, requires both global and local knowledge in order to create customised solutions that meet personal and future financial needs.

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